It should be noted that Texas history is filled with citizens from other states and countries moving to Texas to escape debt and not so friendly debt collection laws, including in some instances, debtor’s prison. For example, William B. Travis avoided arrest in Alabama for unpaid debts by moving to Texas.

As a result, the early Texans were not so fond of government interference in their private matters, including debt-collection. That legacy still exists in Texas today. Obtaining a judgment against a citizen of Texas may be one thing. But collecting it is certainly another.

Chapters 41 and 42 of the Texas Property Code set forth certain property classifications which are “exempt” from execution by a judgment creditor. Execution is the process of forcefully taking the property of a debtor, selling it, and paying the proceeds to a judgment creditor. If the property is exempt, it may not be taken to satisfy a judgment debt.

Chapter 41 of the Texas Property Code deals with exempt real property. Real property includes any permanent improvements and fixtures located on land. Except for certain permitted types of liens and removables, a “homestead” and one or more lots used for a place of burial are exempt from seizure for the claims of a judgment creditor.

In order to qualify as a homestead, the real property (and improvements) must be categorized as either “urban” or “rural”. If a property is “urban”, then the homestead exemption is limited to 10 acres. If a property is “rural”, then for a single adult person the homestead exemption is limited to 100 acres, and for a family the exemption is limited to 200 acres.

A property is considered “rural” if it is not “urban”. A property is considered “urban” if the property is located within the limits of a municipality or the extraterritorial jurisdiction of a municipality or a platted subdivision; and is served by policy protection, paid or volunteer fire protection, and at least 3 of the following services provided by a municipality or under contract to a municipality: (a) electric, (b) natural gas, (c) sewer, (d) storm sewer, and (e) water.

The proceeds from the sale of a homestead continue to be exempt for a period of 6 months following the date of sale.

Chapter 42 of the Texas Property Code addresses exempt personal property. Personal property includes moveable property which is not real property. Certain amounts and types of personal property are exempt from garnishment, attachment, execution, or other seizure. The amount is limited to $100,000.00 of the combined fair market value of the personal property of a family. For a single adult, the exemption amount is limited to $50,000.00.

The following are types of personal property that are exempt so long as the combined value does not exceed the limitations set forth above:

home furnishings, including family heirlooms;

provisions for consumption;

farming or ranching vehicles and implements;

tools, equipment, books, and apparatus, including boats and motor vehicles used in a trade or profession;

wearing apparel;

jewelry not exceeding 25% of the aggregate limits set forth above;

two firearms;

athletic and sporting equipment, including bicycles;

a two-wheeled, three-wheeled, or four-wheeled motor vehicle for each member of a family or single adult who holds a driver’s license or who does not hold a driver’s license but who relies on another person to operate the vehicle for the benefit of the nonlicensed person;

the following animals and forage on hand for their consumption:
1. horses, mules, or donkeys and a saddle, blanket, and bridle for each;
2. 12 head of cattle;
3. 60 head of other types of livestock; and
4. 120 fowl; and

k. household pets.

Unpaid commission for personal services not exceeding 25% of the limitations set forth above are also exempt from seizure.

The following are the types of personal property that are exempt and their combined value is not included in the limitations discussed above:

current wages for personal services (except for court-ordered child support payments);

professionally prescribed health aids of a debtor or a dependent of a debtor.

alimony, support, or separate maintenance received or to be received by the debtor for the support of the debtor or a dependent of a debtor; and

bible or other religious book containing sacred writings (excludes a landlord exercising a contractual or statutory right to seize property after a tenant’s breach of a lease or abandonment of the leased premises).

Additionally, certain savings and retirement plans and college savings plans are also exempted from seizure.

If you ever watch late night television, then you have seen those infomercials touting the ability to make you an overnight millionaire by purchasing financially distressed real estate. There are many individuals and companies who have built successful lives and businesses through the acquisition of financially distressed real estate. However, unless the process is fully understood and the risks are knowingly accepted, the purchase of financially distressed property at a foreclosure sale is not necessarily for the cash rich novice. The following legal and practical issues should be considered prior to acquiring property at a non-judicial foreclosure sale held under a Texas deed of trust.[1]

A deed of trust is the document that a borrower gives to a lender to secure the repayment of a loan with real estate. In a typical Texas mortgage, the parties involved are the borrower, the lender, the trustee, and the owner of the real estate pledged as collateral (“mortgagor”). The borrower is the party responsible for the repayment of the loan. The lender is the party who funded the loan and is the beneficiary of the pledged real estate. In Texas, a trustee performs the duties and responsibilities contained in the deed of trust when the borrower defaults on the loan. The mortgagor is the party pledging the property as collateral for the loan.[2]

It should be noted that non-judicial foreclosures in Texas are generally governed by (i) Chapter 51 of the Texas Property Code, and (ii) the documented agreements between the lender and borrower [3] contained within the loan documents. Certain publicly filed documents which should be reviewed are the deed of trust, renewals/ extensions of the deed of trust, Notice of Trustee’s/Substitute Trustee’s Sale, and any other document affecting title to a mortgaged property (such as easements, leases, liens, restrictions, covenants, estates, and mineral interests, just to mention a few). Unless a purchaser is adept at researching property titles, it is advisable to purchase an abstractor’s certificate from a title company.

There may be other issues which will affect title to the property being foreclosed which do not appear in the public real property records. Some of these issues include encroachments, protrusions, overlapping improvements, set-backs, zoning, platting, building ordinances, flood zones, drainage, utilities, bankruptcy filings, lawsuits, and probate records. Issues which are located on the ground can be addressed by ordering a current survey of the property. However, permission from the current owner must be obtained before legally entering the property to conduct a survey. This can be very difficult, if not impossible. Other issues may be addressed through inquiries of public officials and employees. While information obtained through governmental offices can be valuable, such information may not be completely reliable, and the persons supplying it are typically not liable for inaccuracies.

Except for warranties of title contained in the foreclosure Deed (from the mortgagor not the Trustee/Substitute Trustee), property purchased at a foreclosure sale is sold “AS IS” without any other warranties and at the purchaser’s own risk. The purchaser will acquire the property subject to all physical and title conditions which exist on the date of the foreclosure. Any tenants or occupants of the property on the date of the foreclosure sale may also have rights as parties in possession of the property. Even if the purchaser acquires a meaningful warranty in the foreclosure Deed, enforcing such warranty may be impractical since the mortgagor is usually in dire financial straits.

A foreclosure sale may be set aside for various reasons within four years of the date of the sale under state law and within two years under federal bankruptcy law. Any title insurance policy acquired by the purchaser will usually exclude any defects associated with the foreclosure process and any liens or encumbrances which were not removed by the foreclosure sale. A purchaser at a foreclosure sale is also not a “consumer” relating to the protections afforded by the Texas Deceptive Trade Practices – Consumer Protection Act.

A purchaser should identify these issues, determine acceptability or cost to resolve, and calculate a purchase price accordingly. Resolving an unidentified issue post-purchase may cost tens of thousands of dollars.[4]

Purchasing distressed property at foreclosure typically requires a high degree of risk tolerance. Anyone willing to accept those risks may also want to consider going to Vegas. At least in Vegas, the drinks are free.

[1] As opposed to foreclosure sales by Court order or for unpaid ad valorem taxes which may have different considerations.

[2] While the borrower and the mortgagor are typically the same party, it is not necessary that they are the same.

[3] The third-party mortgagor’s agreements should also be considered, where the borrower and mortgagor are not the same.

[4] Legal fees necessary to clear up a contested title matter can sometimes exceed $100,000.00.

As stated previously, the law of adverse possession is founded on notice. Thus, a claimant must make an actual, visible, appropriation of the land in dispute. Tex. Civ. Prac. & Rem. Code Section 16.021(1). The requirement of an open, notorious, and visible claim is based on the policy that existing rights in land should not be lost without giving the owner an opportunity to take preventive action by taking prompt action to dispute the claim.

The notice provided to the record owner need not be actual, express notice. Instead, constructive notice may be presumed from the nature and extent of the acts of adverse possession. However, if no expressed claim is presented to the record owner, the adverse possession must be so open and notorious, and manifested by such open or visible acts, that knowledge on the part of the title holder may be presumed. Visible appropriation is typically a fact issue.

The claimant’s appropriation of the land must wholly exclude the record owner. Mowing the grass, planting flowers, or maintaining the hedge does not constitute a type of appropriation sufficient to give notice of exclusive and adverse possession by the claimant. However, planting a hedge to establish a boundary line and barrier between the property claimed and the adjacent property may constitute a type of action which will support the basis for adverse possession.

Allowing cattle to graze on another’s land is insufficient, by itself, to establish title by adverse possession. However, grazing combined with the construction of sturdy enclosures, such as a boundary line fence, may rise to such level.

Fencing of land is one form of visible appropriation. However, a fence which exists before the claimant takes possession of the land is considered a casual fence that does not support a claim for adverse possession unless the claimant can show the purpose why the fence was erected. Maintaining or repairing a casual fence generally does not transform a casual fence into a designed enclosure. Where a casual fence is substantially modified to give the record owner notice that it’s character has changed (such as removing a barbed wire fence and constructing a chain link fence), such may constitute a basis for adverse possession.